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Chapter 14: Pricing Concepts For Establishing Value

by: Andrea Lopez

Chapter 14: Pricing Concepts For Establishing Value MKT 301

Marketplace > University of Miami > MKT 301 > Chapter 14 Pricing Concepts For Establishing Value
Andrea Lopez
GPA 3.8
Professor Kettle

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Chapter 14 Notes and Questionnaire. The notes are formatted nicely to make them clear and simple. The questions attached, are all answered in depth.
Professor Kettle
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This 5 page Bundle was uploaded by Andrea Lopez on Monday April 27, 2015. The Bundle belongs to MKT 301 at University of Miami taught by Professor Kettle in Spring2015. Since its upload, it has received 336 views.

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Date Created: 04/27/15
BriceElasticjtxgt emand quotMeasure of sensitivity to a change in pricequot Refers to the change in quantity of demand for a given change in price Want to know the percentage in quantity demanded the percentage change in price Elastic Demand lots of substitutes Coca Cola pepsi sodas Inelastic Demand little change in quantity demanded for price no or few substitutes Gas Cigarettes addictive few substitutes impel P1 300 Gallon P2 400 Gallon Q2 1000 Gallons Q2 900 Gallons Change In Quantity 9291 900100 01 10 Q1 1000 Change in Price P2P1 1 033 33 P1 3 3 010 03 033 W P1 300 12pack P2 360 12pack Q1 1000 casesday Q2 500 casesday Change In Quantity 0201 5001000 500 05 50 Ql 1000 1000 Change in Price P2P1 340300 060 020 20 P1 300 300 050 2 5 0 20 CHAPTER 14 PRICING CONCEPTS FOR ESTABLISHING VALUE WHAT IS THE PRICE quotOverall sacrifice 0 Money 0 Time 0 E o Price is a signal 0 Greater sacri ce signals quotmore worthwhilequot Ex quotI had to drive across town to get thisquot 0 Higher Price higher quality Wine bottles THE quotFIVE Csquot OF PRICING Company Objectives 0 Pro t Orientation Maximizing Pro ts Target Pro t Pricing Target Return Pricing 0 Sales Orientation Maximizing Sales quotPrice Warsquot Premium Pricing Target highend customers 0 Competitor Orientation Competitive Parity Similar prices on products StatusQuo Pricing Prices only change when competitors do 0 Customer Orientation Focused on Value 0 Free Shipping 0 quotNo Hagglequot pricing Customers o Inelastic Demand gt 1 Large prices changes have little effect on quantity demanded Ex Starbucks coffee Rule of thumb 1 is where we draw the line between elastic demand and inelastic demand 0 What Affect Price Elasticity of Demand Income Effect 0 Consumer buy highprices items when their income is higher 0 Ex vacations Starbucks coffee vs McCafe Substitution Effect 0 How available are substitutes 0 Ex air travel movies cigarettes CrossPrice Elasticity Costs How the change in ANOTHER product s price affects change in quantity demanded o Complementary products iPad amp apps for the iPad If the price of an iPad decreases how should this affect demand for apps Demand for your product increases 0 Substitutes products iPad versus Samsun tablet If the price of an iPad decreases how should this affect demand for the Samsun tablet Demand for your product decreases 0 Total Costs Fixed Costs Variable Costs 0 Fixed Costs Same no matter how many units are sold Ex rent management salary 0 Variable Costs Vary with production sales Ex coffee beans for Starbucks labor for GM For each unit sold theses increase total costs 0 Costs vs Revenue Pro ts Total Revenue Total Cost Total Revenue Price x Quantity Total Cost Fixed Cost Total Variable Cost Total Variable Cost Quantity x Variable Costs 0 Contribution per Unit Price Variable Cost 0 Break Even Point Quantity Competition 0 Monopoly One rm Ex Florida Power amp Light Fixed Costs Contributions Per Unit 0 Oligopolistic Competition Few large rms Entry costs are prohibitive Ex Airlines soft drinks o Monopolistic Competition Many rms all differentiated Ex grocery stores 0 Miami Whole Foods Publix Winn Dixie Target WalMart 0 Pure Competition Large number of sellers Standardized products Ex farmers markets openair markets Public Whole Foods 711 Channel Members 0 Manufacturers 0 Wholesalers o Retailers Can give different perspectives on pricing strategy Can be dif cult to coordinate Ex Apple iBooks CHAPTER 14 STUDY GUIDE QUESTIONS 1 What are the ve Cs of Pricing a Company Objectives the rm embraces objectives that seem to t with where management thinks the rm needs to go to be successful in whatever way it de nes success i Pro t Oriented Institute a companywide policy that all products must provide for at least an 18 pro t margin to reach a particular pro t goal for the rm ii Sales Oriented set prices very low to generate new sales and take sales away from competitors even if pro ts suffer iii Competitor Oriented to discourage more competitors from entering the market set prices very low iv Customer Oriented Target market segment of consumers who highly value a particular product bene t and set prices realtively high referred to as a premium pricing b Customers c Costs i Break Even and Decision Making ii MarkUp and Target Return Pricing d Competition i Monopoly one rm provides the product or service in a particular industry which results in less price competition ii Oligopolistic a handful of rms control the market iii Monopolistic many rms selling differentiated products at different prices iv Pure Many rms selling commodities for the same pdces e Channel Members i Manufactures wholesalers retailers 2 What is the difference between elastic versus inelastic demand a Elastic demand is when small changes in price will generate fairly large changes in the quantity demanded so if a rm is trying to increase sales it can lower prices b Inelastic demand is 3 How does one calculate the breakeven point in units a Fixed Costs Contributions per unit


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